CICERO Report 2005:03
Green Electricity Market Development
Lessons from Europe and the U.S. and Implications for Norway
Lin Gana, Gunnar S. Eskelanda, Hans H. Kolshusa, Harald Birkelandb Sascha van Rooijenc and Mark van Weesc
June 2005
a CICERO
b Norsk Energi
c CAP SD Energy and Climate Consultants
CICERO
Center for International Climate and Environmental Research
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Forfattere: Lin Gan, Gunnar S. Eskeland, Hans H.
Kolshus, Harald Birkeland, Sascha van Rooijen, Mark van Wees
Authors: Lin Gan, Gunnar S. Eskeland, Hans H.
Kolshus, Harald Birkeland, Sascha van Rooijen, Mark van Wees
CICERO Report 2005:03, 61 sider CICERO Report 2005:03, 61 pages Finansieringskilde: Norges Forskningsråd Financed by: Research Council of Norway Prosjekt: Green Electricity for Sustainable Energy
Development: A Comparative Analysis of European and U.S. Experiences and Implications for Norway
Project: Green Electricity for Sustainable Energy Development: A Comparative Analysis of European and U.S. Experiences and Implications for Norway.
Prosjektleder: Lin Gan Project manager: Lin Gan Kvalitetsansvarlig: Hege Westskog Quality manager: Hege Westskog Nøkkelord: Grønn elektrisitet, fornybar energi,
virkemidler, grønne sertifikater, innmatningstariffer, Norge, Tyskland, Nederland, Sverige, USA.
Keywords: Green electricity, renewable energy policy, green certificates, feed-in tariffs, Norway, Germany, the Netherlands, Sweden, USA Sammendrag: Ulike fremgangsmåter for å fremme
grønn elektrisitet ble analysert ved å se på landene Tyskland, Nederland, Sverige og USA. Case-studiene har vurdert utviklingen av markedet for grønn elektrisitet og drivkreftene bak utviklingen. Denne rapporten trekker sammen funn av relevans for Norge, spesielt med hensyn til fornybare energikilder, produksjon av elektrisitet, potensial for grønn elektrisitet, relevante politiske tiltak og hovedbarrierer for fremtidig markedsutvikling. Et sett med
virkemidler blir diskutert for Norge, inkludert
innmatingsavgifter, grønne sertifikater med kvoteplikt, og subsidier til forskning og utviking.
Alle virkemidlene har sine styrker og svakheter, men rapporten argumenter for å hjelpe dagens tilgjengelige teknologier – slik som vind – må et valg tas mellom grønne sertifikater med kvoteplikt og
innmatingsavgifter. Begge virkemidlene vil implisitt skattelegge ikke-grønn for å subsidiere grønn elektrisitet. Det tyske studiet viser at
innmatingsavgifter har fordeler som effektivitet, sikkert investeringsmiljø, fleksibilitet og enkel administrasjon. Sverige har et grønt sertifikatsystem for elektrisitet og dersom EU også går i den retning vil dette styrke argumentasjonen for grønne sertifikater.
Rapporten konkluderer at målsetningene for tiltakene må være klare og konsistente, uavhengig av valg av virkemiddel. Det er en også rolle for forskning og utvikling for å hjelpe fremtidens teknologier.
Abstract: Various approaches to promoting green electricity were analyzed through the cases of Germany, the Netherlands, Sweden and the United States. How has green electricity market penetration evolved, and what were the main driving forces? The findings from the case studies are synthesized and analyzed with respect to their relevance for Norway, particularly in terms of energy resources, production, potential, relevant policies and barriers. Potential policy instruments for Norway include feed-in tariffs, green certificates under quota obligations, and subsidies for research and development, and are discussed in terms of their strengths and weaknesses.
The report argues that to assist technologies feasible today – such as wind power – a choice must be made between green certificates based on obligatory quotas and a feed-in tariff system. Both effectively tax non- green electricity to subsidize green electricity. As shown by the German case study, feed-in tariffs have advantages in terms of effectiveness, providing a suitable investment climate, flexibility and ease of administration. Sweden has a system of green electricity certificates, and if EU also goes in this direction, this will provide an opposing argument, in favor of green certificates. The report concludes that a clear and consistent policy design is crucial, regardless of the particular instruments chosen. It also argues that there is a role for R&D support to help the
technologies of the future.
Språk: Engelsk Language of report: English
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Or be downloaded from: http://www.cicero.uio.no
1 Introduction ... 2
2 Green Electricity Market Development... 3
2.1 MAIN DRIVING FORCES... 4
2.1.1 The Natural Resource Base ... 5
2.1.2 Political Interests and Pressure... 6
2.1.3 Concerns about the Natural Environment... 6
2.1.4 Technology Development... 7
2.1.5 Economic Driver ... 8
2.2 MAJOR BARRIERS TO MARKET DEVELOPMENT... 9
2.2.1 Deregulation and Lower Electricity Prices... 9
2.2.2 Potential Conflict Between Policy Instruments ... 9
2.2.3 Lack of Political Will and Institutional Arrangements ... 10
2.2.4 Stochastic Supply, Grid Capacity and Access ... 10
2.2.5 Resistance from Fossil Fuel Based Industries... 10
2.2.6 Weak Consumer Awareness and Support ... 11
2.2.7 Lack of NGO Involvement... 11
2.3 STATUS AND OUTLOOK IN THE CASE-STUDY COUNTRIES... 12
2.3.1 Germany ... 12
2.3.2 The Netherlands ... 13
2.3.3 Sweden ... 14
2.3.4 USA... 16
3 Comparison of Green Electricity Policies ... 17
3.1 POLICY OBJECTIVES... 17
3.2 CATEGORIZATION OF POLICIES AND POLICY INSTRUMENTS... 19
3.3 INSTITUTIONAL DYNAMICS OF GREEN ELECTRICITY MARKETS... 24
3.3.1 Roles and Positions of Policymakers... 24
3.3.2 Position and Influence of Non-government Stakeholders ... 25
3.3.3 Institutions and Actors in a Comparative Perspective... 26
3.4 POLICIES AND POLICY INSTRUMENTS IN THE CASE-STUDY COUNTRIES... 27
3.4.1 Germany ... 27
3.4.2 The Netherlands ... 28
3.4.3 Sweden ... 30
3.4.4 The United States ... 33
3.5 COMPARISON OF POLICIES AND POLICY INSTRUMENTS... 34
4 Green Electricity Market Development in Norway... 36
4.1 ENERGY USE AND RESOURCES... 36
4.1.1 Energy Use ... 36
4.1.2 Energy Resources... 37
4.2 ELECTRICITY SECTOR DEVELOPMENT... 39
4.2.1 Electricity Production ... 39
4.2.2 Deregulation and Electricity Prices ... 40
4.2.3 Electricity Balance ... 42
4.3 POTENTIAL FOR GREEN ELECTRICITY... 43
4.4 POLICIES AND POLICY INSTRUMENTS... 44
4.4.1 Financial Support... 45
4.4.2 Tax Incentives... 48
4.4.3 The EU RES Directive and Norwegian Green Certificate System... 49
4.5 BARRIERS TO MARKET DEVELOPMENT... 51
5.2.2 A Green Certificate Scheme with Obligated Green Electricity Shares ... 55
5.2.3 A Renewable Energy Fund and Other ‘General Revenue’ Schemes ... 55
5.2.4 Tax Incentives... 56
5.2.5 A Voluntary Green Electricity Scheme ... 56
5.3 POLICY IMPLEMENTATION... 56
5.4 OVERALL RECOMMENDATIONS FOR NORWAY... 57
6 References ... 58
Acknowledgements
This research is a joint effort with NVE (Norwegian Water Resources and Energy Directorate). We particularly acknowledge the useful inputs from the following persons: Trond Jensen, Fredric C.
Menz, Hege Westskog, Rolf Wüstenhagen, Michael Bilharz, Wang Yan, and Stephan Vachon. They have provided inputs either through their case-study reports on green electricity, or direct comments and suggestions. This research is supported by a grant from the Research Council of Norway. Their contribution and support are particularly appreciated. We also thank Lynn Nygaard (CICERO) for language and editorial assistance.
AWEA American Wind Energy Association CHP combined heat and power
CIAB Coal Industry Advisory Board EEG German Renewable Energy Act EIA Energy Information Administration EREC European Renewable Energy Council
EU European Union
IEA International Energy Agency
IPCC Intergovernmental Panel on Climate Change GCS Green Certificate System
GE green electricity
GHG greenhouse gases
GW/GWh gigawatt/gigawatt hour GWP Global Warming Potential kW/kWh kilowatt/kilowatt hour MEA Ministry of Economic Affairs MW/MWh megawatt/megawatt hour NGO non-governmental organization
NOK Norwegian kroner
NVE Norwegian Water Resources and Energy Directorate OECD Organisation for Economic Co-operation and Development
PJ petajoule
PURPA Public Utilities Regulatory Policies Act
PV photovoltaic
R&D research and development
RD&D research, development and demonstration RECS Renewable Energy Certificate System ROCS Renewable Obligation Certificates RPS Renewable Portfolio Standards SEA Swedish Energy Agency
SEK Swedish kroner
SFT State Pollution Authority
SSNC Swedish Society for Nature Conservation TW/TWh terrawatt/terrawatt hour
UN United Nations
UNCED United Nations Conference on Environment and Development UNDP United Nations Development Program
UNFCCC United Nations Framework Convention on Climate Change VAT value added tax
WCED World Commission on Environment and Development WEC World Energy Council
WWF World Wide Fund for Nature
Executive summary
Case studies in Germany, the Netherlands, Sweden and the United States have examined how green electricity market penetration has evolved and the main driving forces behind its development. Over the past few decades, all of the countries studied have employed a mix of policy instruments to support renewable energy and have had one or more shifts in policy focus. The 1970s focused primarily on R&D stimulus, followed by investment subsidies in the 1980s, consumers’ support in the 1990s and producers’ support at present. Most case- study countries support renewable energy with financial incentives. The quota system in Sweden and the renewable portfolio standard of the United States are presently the only non- financial instruments applied. Countries do not stimulate different renewable technologies neutrally. Germany and the Netherlands, for example, differentiate their feed-in tariffs by technology. The Swedish quota system, however, does not differentiate between renewable energy technologies. Because the quota system sets targets for the share of renewables as a whole, it is likely selects the least-cost among technologies presently available.
The lessons from the case studies are applied to the case of Norway, a country where virtually all current electricity needs are satisfied by large-scale hydroelectric power, but where additional capacity will be needed in the future. A lesson to emerge from the case studies is the importance of a clear, consistent, and coherent policy as investors require long term stability. For a country to develop a clear and consistent policy on green electricity, with the appropriate resources allocated to its implementation, it must place green electricity high on the political agenda. In addition, consistent and cohesive policy design requires a careful consideration of the policy options available. These policy options include feed-in tariffs, green certificates under quota obligations, and subsidies for research and development as well as for adoption. The report concludes that feed-in tariffs have important advantages with respect to flexibility and ease of implementation. Sweden has, however, already opted for a green certificates scheme, and this – together with potential developments in EU in the same direction – could potentially be important enough for Norway to choose such a system.
Another dimension important in green electricity development is research on new
technologies. Here, the report recommends a scheme with publicly funded research, perhaps funded with resources raised from energy and electricity consumption, though the source of funding is less important. Finally, once a policy is designed, its success depends on the extent to which it is implemented, which, in turn, depends greatly on existing implementation capacity and efforts to strengthen implementation capacity.
1 Introduction
Renewable energy development has evolved differently in national and regional settings in the past decades. Interest in renewable energy began with increased environmental awareness in the 1960s and in debates concerning the relative merits of nuclear power versus fossil fuels for meeting increasing demand for electricity. In the mid-1970s and 1980s, interest in renewable energy surged as a result of the “energy crisis” caused by the disruption of oil supplies and the rising prices of oil and other fossil fuels. From the early 1990s, interest in renewable energy continued to grow because of widespread interest in sustainable
development following the report “Our Common Future” (World Commission on
Environment and Development 1987). In the 1990s, debates on renewable energy got an extra stimulus from international environmental actions, such as the UN Framework on Climate Change in Rio (1992) and the Kyoto Protocol (1997). Interest intensified over the past several years because of the need to implement cost-effective greenhouse gas (GHG) mitigation policies, concerns for energy security, reduction of local environmental impacts of fossil fuels burning, global integration and liberalization of the energy market.1 Recently, attention stems from the adoption of EU’s RES-Directive and the Political Declaration and the International Action Programme at the International Renewable Energy Conference in Bonn (2004), which has indicated a new trend of development on renewable power generation, and even more is expected at the Bonn follow-up ministerial conference to be held in Beijing in November 2005.
Agencies such as the Organization for Economic Cooperation and Development (OECD) and the International Energy Agency (IEA) have focused their attention on the issue, and interest has intensified because of the need to implement cost-effective GHG mitigation policies, increase global integration and liberalize energy markets throughout the world.2 Politicians and business leaders are increasingly concerned about speeding up the development of renewable energy technologies and their market adaptation. Government regulations and incentive policies play a critical role in promoting renewable energy. There is also a growing interest in developing and using cleaner energy from environmentally-
concerned industries, including electric utilities. Consumers increasingly demand more flexible systems, more choices, stricter environmental standards and higher quality electricity supply and services. Quite possibly, the 21st century will be seen as a critical time for the development and large-scale market dissemination of electricity from renewable energy sources.
The terms “green energy” and “green electricity” are evocative, popular terms, with a variety of meanings at best relating to a blend of objectives. One avenue towards clarification is to distinguish between the ultimate services that energy consumption provides. IEA (2002) identifies the four main energy services as transport, stationary services, electrical uses and fuel inputs to power generation. This report focuses on electricity,3 and further differentiates electricity according to how it is produced. Green electricity is produced from wind, solar, biomass, geothermal, hydropower4 and wave/tidal sources.
1 A recent driver in Europe is the implementation of the EU Directive 2001/77/EC on renewable energy sources, known as the “RES-Directive” (EU 2001).
2 OECD 1998, 2001.
3 The production of heat from renewable energy sources is discussed in the Norwegian case but is not included in the other case-study countries.
4 The EU (2001) RES Directive on the promotion of electricity produced from renewable energy sources does not distinguish between large-scale and small-scale hydropower. However, earlier EU
The interest in green energy – and more specifically green electricity – can be related to policy objectives, including energy security, environmental protection and climate change mitigation. As a practical matter for this report, allowing for several underlying policy objectives, we assume that these are operationalized as increasing the share of renewable energy sources in electricity production. It is increasingly recognized that green electricity becomes a very important component in electricity production as worldwide demand for electricity increases. Thus, it is important to review policies designed to increase utilization of renewable energy sources. Alongside instruments such as Europe’s emission trading system (2005-2007) and the Kyoto quota market (2008-2012) that are designed to reduce CO2
emissions, green electricity development adds a new dimension to electric power production and consumption. In general terms, a policy intervention either taxes non-green electricity and/or subsidizes green electricity. This allows renewable energy technologies to compete when they otherwise could not, potentially allowing them to develop and become more competitive. Specific policy instruments vary widely (see chapter 3), and include such options as using quotas rather than price instruments, influencing research rather than expanding the use of existing technologies.
This report reviews the development of green electricity markets in Germany, the
Netherlands, Sweden, and the United States (see Wüstenhagen and Bilharz 2004; van Rooijen and van Wees 2003; Wang 2004; Menz 2004; and Menz and Vachon 2004). These case- studies compare how the countries differ in terms of resource endowments, energy politics, energy industry structures, regulatory policies, energy prices, citizen attitudes, and the mass media involvement. They examine how green electricity market penetration has evolved, and the main driving forces behind its development. This report presents the main findings of the case studies and discusses how the findings may be relevant for potential green electricity policy and market development in Norway. While virtually all of Norway’s current electricity needs are satisfied by large-scale hydroelectric power, additional capacity will be needed in the relatively near future. Identifying policy options for Norway is therefore important because of the increasing role that green electricity could play in providing sustainable and secure energy supplies in the future. This report describes potential impediments, existing public policies, and possible measures for increasing production and use of green electricity in Norway.
The report is organized as follows: Chapter 2 focuses on driving forces for and barriers against green electricity market development, and the status and outlook for green electricity in the case-study countries. Chapter 3 discusses the policy objectives, categorizes policy instruments, addresses the institutional aspects of policy development and analyses the instruments applied in the four case-study countries. Chapter 4 analyzes resources, supply and demand for electricity, and the green electricity market development in Norway. In
conclusion, Chapter 5 makes the policy recommendations for Norway on its future development of green electricity.
2 Green Electricity Market Development
How important are renewable energy sources for electricity production today? The IEA (2002) estimates that 39 percent of the global production of electricity in 2000 was supplied by coal, while gas, nuclear and hydropower all supplied 17 percent each. The remaining electricity production was from oil (8%) and other renewables (2%). The mixture varies across regions; for example, hydropower supplied 68 percent of the electricity in Latin documents define large hydro as projects above 10 MW installed capacity. A strict definition of green electricity should exclude electricity produced from large hydropower because of its environmental and social impacts. See sections 3.1 and 4.4 for more details on the RES Directive.
America but only 12 percent in Europe. The share of other renewables did not exceed 3 percent in any region for 2000. The country-specific statistics (IEA 2001a) in Table 2.1 show that there are significant variations across countries in terms of the fuel mix for electricity production.
Table 2.1 Electricity Production by Energy Carrier in Major Countries*, 2001 (percent) Country Fossil
fuels
Nuclear Waste Hydro Biomass Geothermal Other**
Australia 91.5 0.0 0.0 7.7 0.6 0.0 0.1
Canada 29.1 13.0 0.0 56.7 1.2 0.0 0.1
China 79.8 1.2 0.0 18.9 0.1 0.0 0.0
France 8.6 76.5 0.3 14.3 0.3 0.0 0.1
Germany 62.5 29.4 1.8 4.0 0.5 0.0 1.8
India 83.1 3.4 0.0 12.8 0.3 0.0 0.3
Italy 77.4 0.0 0.6 19.3 0.3 1.6 0.7
Japan 58.7 30.7 0.5 9.0 0.7 0.3 0.0
Netherlands 90.7 4.2 2.7 0.1 1.0 0.0 1.1
Norway 0.4 0.0 0.0 99.3 0.2 0.0 0.0
Russia 64.6 15.4 0.3 19.7 0.0 0.0 0.0
Sweden 4.0 44.6 0.3 49.0 1.9 0.0 0.3
UK 73.5 23.4 0.4 1.7 0.9 0.0 0.3
USA 71.0 20.8 0.6 5.7 1.2 0.4 0.2
Source: IEA 2001a
* Norway is included for comparison.
** Includes solar and wind.
2.1 Main Driving Forces
A way to examine the cross-sectional patterns of electricity production as shown in Table 2.1 is to look at key driving forces: resource availability, and political, environmental,
technological and economic factors. These are, of course, not independent of one another, but one can argue that in the cross-sectional pattern, there is an almost hierarchical order. First, nature itself exercises a heavy hand through the natural resource base. Countries are to a varying extent endowed with resources such as hydropower, geothermal energy and coal, which for reasons of transportation costs allow country-specific cost advantages for those energy sources. Second, there are political driving forces. These are related to other driving forces, perhaps particularly environmental and economic, and their traces are also heavy, in particular for nuclear power. The economics or technology of nuclear power depends less on the natural resource base than political factors (some of those concerns are environmental), so the main characteristic of France is that the country combines (or perhaps responds to) a scarcity of other energy sources with politics that have allowed nuclear power development.
Environmental concerns have had influence beyond nuclear power, in particular for the point at which countries stop further development of their hydropower resources (in Norway, for instance). For coal combustion, environmental concerns have been important in making coal combustion cleaner, switching to cleaner coal, and to some extent replacing coal with other
sources of energy. Nevertheless in the USA and Europe, coal-fired power plants have retained their competitiveness, even for new plants, while the pressure on emissions has grown.
2.1.1 The Natural Resource Base
The fuel mix of a country’s electricity production can to a large extent reflect its given natural resources. Some countries (such as Norway, Canada and Sweden) have significant water resources, while others (such as Australia, China, Germany and the USA) have significant coal resources. Increased use of renewable energy resources could be driven by the limited availability of fossil fuels. Assessments of fossil fuel availability usually focus on
conventional hydrocarbon reserves, i.e. those occurrences that can be exploited with current technologies and market conditions. Rogner (1997) finds that the focus on reserves
underestimates long-term global hydrocarbon availability. But the potential accessibility of fossil fuels increases dramatically if the vast unconventional hydrocarbons are included in the resource estimates. This is based on the application of historically observed rates of
technology change and long-term production costs that are not significantly higher than present market prices.
Nevertheless, fossil fuels will become scarcer over time, and renewable energy sources could play a larger role in energy markets. Globally, there are vast amounts of renewable energy resources that could be utilized for electricity production. This is shown in an assessment by the Intergovernmental Panel on Climate Change (IPCC 2001). The global technical potential of hydropower is estimated at 14,000 TWh/year, while the economic potential is limited to 6,900-8,700 TWh/year. The largest potentials are in Latin America, Asia and the former Soviet Republic countries. Globally, biomass has a technical energy potential of 396 EJ/year, with the largest potential for development in South America and Africa. The global theoretical wind potential is estimated at 480,000 TWh/year, but 20,000 TWh5 is given as a more realistic potential. When it comes to solar energy, even the lowest estimates of technical potential exceed current global energy use by a factor of four.
Many scenarios have been developed to help project future energy supply and demand. The IEA (2002) estimates that electricity production from both hydropower and other renewables will increase towards 2020. The increase in production of electricity from hydropower will mainly take place in developing countries where there still is a large potential. However, hydropower’s share of global production will be reduced to 15 percent. Most of the growth in electricity production from other renewables will take place in OECD countries, and its share of global production will increase to 3 percent. Biomass and wind power will account for most of the projected growth, but it is expected that geothermal, solar and other power sources will contribute more after 2020. Other studies also project the extent to which renewable resources will meet the demand for energy and electricity. The IPCC developed a set of scenarios until 2100, and these were presented in a Special Report on Emission Scenarios (IPCC 2000). Although the study does not project the fuel mix for electricity production, it does project the share of renewables of primary energy. For 2020, this share varies from 5 to 19 percent in the marker scenarios, while the share in 2100 varies from 14 to 80 percent. The wide range reflects the differences in the driving forces for the scenarios, such as demographic change, economic growth rates and technological change. The US Energy Information Administration6 (EIA 2004b) projects that global electricity production from hydropower and other renewables will increase by 57 percent from 2001 to 2025, but its share of total electricity production will remain at the current level of 20 percent.
5 Technical potential assumes that 27 percent of the earth’s surface is exposed to a mean annual wind speed higher than 5.1 m/s at 10 meters above ground. The realistic potential assumes that just 4 percent of that land area could be used.
6 The official energy statistics from the US Government
2.1.2 Political Interests and Pressure
Although there was interest in renewable energies in the 1960s and 1970s, the first major political boost came when the UN World Commission on Environment and Development (WCED) brought the concept of sustainable development to the political agenda with the report Our Common Future (WCED 1987). The report tried to strike a balance between environment and development, North and South, and between the present and the future. In terms of energy, the WCED recommended reducing resource- and energy-intensive activities, using resources and energy more efficiently, and changing production and consumption patterns. As a follow up to the WCED report, the UN General Assembly decided to hold regional conferences and a global conference. Thus, the UN Conference on Environment and Development (UNCED) took place in Rio de Janeiro in 1992. The conference adopted Agenda 21, a comprehensive, international plan of action to achieve more sustainable patterns of development. Agenda 21 reached the conclusion that the energy course was unsustainable and recommended a series of concrete actions to promote sustainable energy production and use (UNDP 1997).
Greenhouse gas emissions and the issue of climate change were dealt with extensively at the 1992 Rio Conference, and the UN Framework Convention on Climate Change
(UNFCCC) was signed at the conference. Although the UNFCCC does not include stabilization commitments, quantified targets or timetables, it laid the basis for the development of the Kyoto Protocol in 1997. The Kyoto Protocol requires most developed countries to reduce their GHG emissions by 5.2 percent relative to 1990 levels in the period 2008-2012. The development of renewable energy sources should benefit from the
implementation of the Kyoto Protocol, as the GHG emissions from electricity produced from fossil fuels would incur an additional cost. As a follow-up to the Rio conference, the World Summit on Sustainable Development took place in Johannesburg in 2002. In June 2004, the World Renewable Energy Conference in Bonn was held as a response to the call of the Johannesburg summit for the global development of renewable energies. The central issue was how to increase the share of renewable energy technologies for power generation in industrialized and developing countries. This should be done in ways that better exploited their relative strengths and capacities to meet the future needs of consumers. The current preparation for the follow-up of the Bonn conference is to hold a ministerial renewable conference in Beijing in November 2005. It is expected that further political commitments could be made through this event.
It is clear that political leaders have been inspired by these major events but also from public opinion and NGO involvement. The trend for sustainable energy development has become mainstreamed in political agendas also at the national level, in both developed and developing countries. At the World Renewable Energy Conference in Bonn, a number of concrete actions and commitments towards renewable energy were put forward by a large number of governments, international organizations and stakeholders from civil society and the private sector, known as the International Action Programme.7
2.1.3 Concerns about the Natural Environment
The most obvious driver for renewable energy from the environmental perspective is the concern about increased concentrations of GHG and the resulting climate change effects.
Fossil fuel combustion is the primary source of CO2 emissions, and the resulting global warming represents a major challenge to human society and global eco-systems. However, the combustion of fossil fuels has also consequences for local and regional pollution, as it
7 China pledged to significantly increase renewable energy power generation so that it will account for 10 percent of its generating capacity by 2010. Countries such as Germany, Denmark, Egypt, and the Philippines also made significant commitments.
emits sulfur and nitrogen oxides, carbon monoxide and suspended particulate matter. At the local level, fossil fuel combustion is a major contributor to urban air pollution, which is thought to contribute to millions of illness- and mortality incidents around the world. Coal mining activities result in soil erosion, pollution and often in the loss of human lives due to mine accidents. At the regional level, soil acidification is causing significant damage to natural systems, crops, and human-made structures. These pollutants are shown to cause considerable health and other ecological damages in Europe, the USA, and China (WWF China 2003). Using renewable energy sources would result in significantly less negative environmental and health impacts, especially by replacing electricity produced from coal (Goldemberg 2004, Aunan et al. 2004).
2.1.4 Technology Development
The high costs of R&D but generally also the costs per kWh, combined with an insufficient scale of development are often seen as the principal constraints on the growth of renewable energy technologies. But substantial technological development and cost reductions have made several renewable energy technologies more competitive. Despite these gains,
renewable energy sources so far make only a modest contribution to the global production of electricity (IEA 2002). In a study by McVeigh et al. 1999, the actual performance of
renewable energy technologies in the USA over three decades was compared against stated projections. The study found that, in general, renewable technologies failed to meet expectations with respect to market penetration. However, they succeeded in meeting or exceeding expectations with respect to their costs. The small market share of renewables appears to have more to do with changes outside their own development, principally regulatory reform and changes in conventional technologies (declining real prices of fossil based power), than with their technological performance.
Neuhoff (2004) distinguishes between three distinct generations of renewable energy technologies, each presenting different, complex challenges to expansion of their markets.
The mature generation (hydropower, biomass combustion, wind power, solar thermal
utilization and geothermal technologies) are already cost-competitive, provided the renewable plants are located in high quality resource areas. The emerging generation (advanced
bioenergy, and solar PV) are proven technically, but still need substantial cost reduction through market expansion. Concentrated solar power, thin-film technology, ocean energy, and even more advanced bioenergy will require substantial R&D in order for these technologies prove themselves at the market scale and to begin entry into commercial markets applications.
With a larger market dissemination and increased cumulative installed capacity of renewable energies, economies of scale could lower costs and accelerate demand. Predicting the future costs of electricity from renewable energy sources is difficult, but there are estimates. Table 2.2 combines Turkenburg’s assessment of current costs and IEA’s assessment of likely cost reductions. Although the estimates can vary depending on site conditions, the study reports cost reductions of 10-15 percent for bioenergy, 15-30 percent for onshore and offshore wind energy, 30-50 percent for solar PV energy, and 10 percent for geothermal and hydropower by 2020.
Countries that have the political will and willingness of the industry have been able to build up industries for renewable energy technologies. Such examples are Denmark and Germany for wind technologies, Sweden and Finland for biomass CHP, Japan, Germany and to some extent USA for solar PV application in buildings. This has led to social benefits, e.g.
employment, but also brings economic benefits as shown by the export of wind turbines from Denmark and Germany.
Table 2.2 Current and Potential Future Costs of Electricity from Renewable Energy
Current cost8 Cost reductions by 2020
Biomass 3-12 ¢kWh 10-15%
Wind 4-8 ¢kWh 15-30%
Solar PV 25-160 ¢kWh 30-50%
Geothermal 2-10 ¢kWh 10%
Hydro 2-12 ¢kWh 10%
Source: Turkenburg 2001, IEA 2001b
2.1.5 Economic Driver
Energy prices are important considerations for energy supply and demand. The costs of renewable energies are not fully comparable to conventional energies because of the latters’
externalities, but it is clear that the price of conventional energies affect the demand for electricity from renewable energy sources. An early sign of this is the disruption of oil supplies and consequently the rising prices of oil and other fossil fuels in the mid-1970s and 1980s that stimulated the interest in renewable energies. Figure 2.1 shows that crude oil prices have become much more volatile since the mid-1990s.
Source: IEA 2002.
Figure 2.1 Monthly Average Spot Price of Brent Blend Crude Oil (1987-2002)
From 1987 to 1996, the monthly average spot price of Brent Blend crude oil fluctuated between US$13 and US$22 per barrel in nominal terms. The exception is 1996, when the price reached about US$35 per barrel as a result of the first Gulf War. Since 1996, the monthly average spot prices have fluctuated over a wider range, from a low of under US$10 in February 1999 to a high of US$33 in the autumn of 2000 (IEA 2002). Since then, the monthly average spot price gradually fluctuated down to about US$20 in early 2002 but has increased to reach US$50 in the autumn of 2004.9 IEA finds that unless surplus capacity in
8 Euro cent
9 There were days when the spot price reached US$52 per barrel (EIA 2004a).
crude oil production and refining increases, markets will remain sensitive to actual or feared swings or disruptions in supply. Geopolitics and regional conflicts also affect oil prices.
Even though oil is the most important energy source, coal remains the most important fuel for electricity generation. Coal trade, especially seaborne trade in hard coal, has on average increased by around 4 percent a year since 1970. The growth is dominated by the trade in steaming coal, which is used mainly for electricity generation. The main reason for coal’s dominating role in the production of electricity has been its low and stable, even slightly decreasing prices and transportation costs (WEC 2004). Between 1995 and 2002, many new mines were developed specifically for the export market and resulted in a upward pressure on prices due to strong market demand. With lower growth in production capacity and more transparent coal markets, price cycles have become more frequent. A large part of the recent price increases for steam coal have been driven by freight cost increases (CIAB 2004). Long- term price projection for coal is very difficult, and forecasts tend to be inaccurate (Gawlick 2004). Nevertheless, if the current high oil and coal prices prevail, it will stimulate the development of alternative energy sources.
2.2 Major Barriers to Market Development
Although there are certain driving forces that would seem to encourage the production of energy from renewable energy sources, Table 2.1 shows that renewable energy still accounts for only a small share of total electricity production. Cost is widely seen as the main barrier for the development of renewable energy sources (see section 2.1), but in the following section we briefly discuss some of the other major barriers to green electricity policy and market development.
2.2.1 Deregulation and Lower Electricity Prices
The deregulation of electricity markets has led to increased competition in the market both because producers have to compete for market shares and because consumers have the opportunity to choose their source of electricity. Increased competition in electricity markets may, however, have a negative effect on green electricity development and on the
environment, as the fossil fuel prices become lower. While there is evidence that consumers in the USA are willing to pay a premium to obtain electricity produced from renewable sources, customers with the opportunity to choose their source of electricity may choose among sources according to price and environmental externalities. Utilities facing competitive pressures have an incentive to turn to the cheapest source of electricity generation consistent with pollution control regulations. Since electricity costs do not typically reflect all
environmental costs, sources that offer the lowest cost could be those that result in the most pollution. To the extent that prices for electricity produced from renewable technologies more fully capture external costs than prices for electricity from conventional sources, cleaner renewable electricity technologies would be at a disadvantage relative to conventional technologies in restructured, competitive markets. Furthermore, renewable electricity
technologies are generally characterized by relatively high capital costs and low operation and maintenance costs, making them more attractive over long time horizons and less attractive to firms facing short-term competitive pressures (Menz 2004).
2.2.2 Potential Conflict Between Policy Instruments
The review of the case studies shows that there are numerous policy instruments, both financial and non-financial, that can be used to promote the development of green electricity.
However, mixing policy instruments can lead to different incentives working in different directions with respect to the chosen technologies.
2.2.3 Lack of Political Will and Institutional Arrangements
It has been widely recognized that strong political will from concerned governments on green power development is key to the successful development of renewables. Political will has played an important role in Germany, for instance, where wind power has become mainstreamed in industrial sectors, and substantial production capacity in wind turbines power plants has been built in some 10 years. This would be unthinkable without strong political comments and associated policy support. It can be generalized that political
willingness to support green power development is a precondition for green power industrial development. Agreements are needed among key parties, including agreements on visions for long-term development, and on concrete regulatory and incentive policies. Thus, institutional arrangements also need to be in place to facilitate such agreements, resolve disputes and implement policies. It appears that central government coordination is important for the decision-making and policy implementation processes. Substantial human resources arrangements are also critical.
2.2.4 Stochastic Supply, Grid Capacity and Access
Hydropower without storage, wind power, and various forms of solar and wave energy are by nature stochastic and result in an uncertain electricity production. This creates difficulty in ensuring electricity supply. There will therefore be a need for a back up (spinning reserve), but this increases the cost. Because of the intermittent nature of, for example, wind resources, it is better suited to supplement rather than replace the more traditional forms of power production (coal, natural gas and nuclear). Transmission policies that impose stringent scheduling requirements or otherwise fail to accommodate the characteristics of the generation resources may result in implicit discrimination against non-traditional resources such as wind (AWEA 2002).
The lack of capacity and access to the electricity grid can also limit green electricity market development. Taking wind power as an example, transporting electricity produced from a large offshore wind farm to land is economically feasible only where sufficient electricity grid capacity is available. Since wind resources are typically remote from load centers, the
development of wind generation requires development of associated long-distance
transmission lines that reach those locations (AWEA 2002). But it is not only a question of grid capacity. Electric utilities often maintain monopoly rights to produce, transmit and distribute electricity. High costs or a lack of standards for connection and transmission hence discourage the penetration of renewable energy sources in electricity markets. Renewable energy sources in distributed generation involve the use of small, modular electricity generation units close to the point of resource consumption location. Unfortunately, utilities have limited experience in connecting numerous small-scale generation units to their distribution networks, and the possible level of renewables penetration depends strongly on the existing electrical infrastructure (EREC 2004).
2.2.5 Resistance from Fossil Fuel Based Industries
Commercial utilization of fossil fuels has been the main source of power supply from the time of modern history, particularly from the Industrial Revolution. Coal became the main source of fuel in the 17th century, and was joined by oil and natural gas in the 20th century.
Consequently, industrial infrastructure (coal mines, oil fields, power plants, transmission lines, oil and gas pipe lines, machinery production, and transportation systems) are all built to serve the needs of the fossil fuel industries. Fossil fuel and related technologies are mature and inexpensive due to large quantities in production, and stakes are high for producers along the value chain in those industries. As fossil fuel prices are still cheap in the world markets, these industries have been able to develop a strong power base and lobbying power to
governments in major industrialized countries10 and key developing countries such as China and India. Their vested interests mean that certain policy reforms can be met by strong opposition. Many small stakeholders can participate in the development of green power generation, and they tend to be decentralized and fulfill local demands. Decentralized renewable power generation is certainly not in the interest of major fossil fuel power industries,11 as it can reshape the structure of the conventional power industry.
2.2.6 Weak Consumer Awareness and Support
Renewable energy sources are often supported by the public. But even though consumers now have a better opportunity to choose their source of electricity, weak consumer awareness and inability to purchase green electricity may pose barriers. Experience from the United States shows that consumers who have purchased green products through financial incentive programs generally have a long-standing interest in renewable energy and are strongly motivated by non-economic factors, including environmental concerns, a desire to reduce dependence on utilities, and national security threats. Until recently, most US electricity customers have not been able to participate in green electricity markets, and currently that opportunity is limited to electricity customers in about 30 states (Menz 2004). An important factor influencing consumer interest is naturally the price of green electricity but also the focus on this in the mass media. An analysis of utility market research studies (Farhar 1999) shows that across the studies examined, majorities of 52 to 95 percent said they were willing to pay at least a modest amount more per month on their electric bills for power from renewable sources. Polls show that customers’ willingness to pay increases when customers are educated about utility energy options. Information and education are important, and the media can play an important role.
2.2.7 Lack of NGO Involvement
Environmental NGOs can play an active role in promoting green electricity market development. In Sweden, the Swedish Society for Nature Conservation (SSNC) was
instrumental in initiating a number of environmental schemes and guidelines. The aim of their labeling scheme was to speed up the conversion from nuclear power and fossil fuels to renewable energy sources and to prevent the continued expansion of hydroelectric power stations (Wang 2004). In the Netherlands, WWF has been instrumental in mobilizing the support from the mass media in the green electricity campaign. Similarly, German NGOs have been active in launching three competing eco-labeling schemes.12 However, there is still a lack of strong NGO presence and influence in green power development. Many
environmental NGOs are limited by their expertise, financial constraints and lobbying power.
There are few incentive mechanisms to encourage their participation from the government’s side.
10 For example, the oil and coal industries have been successful in lobbying the U.S. government to block the progress of the Kyoto Protocol, and have prevented the government from making any commitment on CO2 emissions reduction in the U.S.
11 This has been the case in the formation process of the Renewable Energy Law in China. Major power companies tried to block the discussion on quota obligations for renewable energy production.
12 Eco-labelling does not appear to be a strong positive driver for green electricity marketing in Germany so far. This is because competing eco-labels counteract the basic function of an eco-label to reduce complexity and give guidance to consumers, and because they have a high level of
sophistication in distinguishing green power from EEG-supported electricity.
2.3 Status and Outlook in the Case-study Countries
The status of green electricity in the case-study countries is summarized in Table 2.3.
Including hydropower, almost half of Sweden’s electricity production in 2002 came from renewables, while the other countries’ share of renewables ranged from 4 to 9 percent.
Excluding hydropower reduces the share of renewables to 2-4 percent in all four countries.
More details are found in the following sections.
Table 2.3 Share of Green Electricity Production in the Case Study Countries (2002)
percent green electricity
Country with hydro without hydro Energy source ranked by importance
Germany 7.8 3.8 Hydro, wind, biomass, solar
Netherlands13 4.0 3.9 Biomass, wind, hydro, solar
Sweden 49.0 3.0 Hydro, biomass, wind, solar
USA 8.8 2.2 Hydro, biomass, wind, thermal, solar Sources: Wüstenhagen and Bilharz 2004; Eurostat 2004; Dutch Government 2003; Wang 2004; Menz 2004.
2.3.1 Germany
Germany relies heavily on coal and nuclear power, which account for 50.6 percent and 28.3 percent of electricity production, respectively, in 2002. Natural gas makes up 9.3 percent, and the share of renewables in electricity generation has almost tripled from 2.8 percent (15 TWh) in 1991 to 7.8 percent (46 TWh) in 2002. Hydropower is currently the most important energy source for green electricity consumption in Germany, as it accounted for about 4 percent in 2002. Growth in hydropower has been relatively limited in recent years, and the number of large hydropower plants has been stable over the past few decades. A number of small hydropower plants (< 5 MW) were decommissioned throughout the 20th century, but the trend has been reversed due to the introduction of the feed-in law in 1991. Refurbishment of existing hydropower plants with careful environmental impact management looks like the most promising option in terms of increasing electricity production with hydropower (Wüstenhagen and Bilharz 2004).
Three percent of the electricity consumption in 2002 came from wind power. Starting from only 27 MW installed capacity in 1989, wind power has seen an almost 60 percent compound annual growth rate for 13 consecutive years. In 2002, the installed capacity for wind power in Germany exceeded 12,000 MW, representing about half of the capacity in Europe and more than one third worldwide. Biomass accounted for less than 1 percent of electricity
consumption in 2002. However, biomass CHP has become a high priority from 2004. Several players have announced plans to build new power plants using solid biomass. Identifying a continuous flow of resources within a useful proximity is crucial for competitive operation of larger biomass plants (5-20 MW). Photovoltaics (PV) have a small market share in Germany with about 0.03 percent of electricity consumption in 2002. However, growth rates have been very high, about 50 percent annually, throughout the decade. In terms of installed capacity, Germany ranked second behind Japan at the end of 2003. Geothermal energy has so far only been used for heat supply and not for electricity generation.14 Eight pilot and demonstration plants are currently being planned, and geothermal electricity generation has a technical
13 Statistics from Eurostat and the Dutch Government used instead of van Rooijen and van Wees (2003) as it does not report figures for 2002.
14 Only exception is a small geothermal power plant in North-Eastern Germany.
potential that is comparable with PV and onshore wind energy (Wüstenhagen and Bilharz 2004).
Further growth is expected, particularly in wind energy, PV and biomass. A study
commissioned by the German Ministry of Environment and Environmental Agency finds that wind (onshore and offshore) and solar energy have long-term technical potential to generate 250 TWh of electricity per year (more than 40 percent of German electricity consumption in 2002). In a scenario aiming at 80 percent CO2 reduction by 2050, the Environmental Agency estimates that 63 percent of the electricity will be generated from renewable energy sources. It is expected that 46 percent will come from domestic generation, while 17 percent will be covered by imports (Wüstenhagen and Bilharz 2004).
The liberalization of the electricity market in 1998 is important, as it became possible for customers to directly influence the way their electricity is made. Initial price competition led to an erosion of profit margins and a wave of mergers and acquisitions. New green power marketers introduced products while incumbent utilities repositioned their programs for the newly competitive market environment (Bird et al. 2002). Today, more than 135 marketers supply 1,700 GWh of green power to an estimated 490,000 customers in Germany. This represents a market share of about 1.3 percent of residential customers. A survey
(Wüstenhagen and Bilharz 2004) among German green power suppliers estimates that 127 MW of new capacity has been created as a result of green power demand between 1999 and 2003. They find that green power marketing driven by customer demand is growing but has had limited measurable impact so far. However, scenario analysis for the next ten years suggests that green power marketing could come close to driving half of the new capacity in 2013.
2.3.2 The Netherlands
The Dutch electricity sector has since the 1970s been dominated by natural gas, coal and oil.
In 2002, these energy sources accounted for about 92 percent of the electricity production while nuclear energy accounted for 4 percent. Renewable energy sources accounted for 3,644 TWh or 4 percent of the Dutch electricity production in 2002. Green electricity production increased by 21 percent from 2001 and by 39 percent compared to 2000. Almost 70 percent of the green electricity production in 2002 came from biomass, accounting for 2,535 TWh and 2.8 percent of the total electricity production. One percent of the total electricity came from wind energy, while hydropower, PV and thermal energy accounted for only 0.14 percent, 0.06 percent and 0.02 percent, respectively. The Netherlands requires import to meet the demand for electricity. In 2002, electricity imports amounted to 20.9 TWh, and of this, 10.35 TWh were considered green. This represents a significant increase from the green electricity imports of 7.6 TWh in 2001 and 1.5 TWh in 2000 (van Damme and Zwart 2003). Taking import into account, green electricity accounted for 9.9 percent and 12.9 percent of the total electricity consumed in 2001 and 2002, respectively.
Installed onshore wind electricity capacity in the Netherlands amounted to 466 MW in 2000. A review of the literature for onshore wind potential shows that the technical potential could be as high as 6 GW, but most studies assume at least 2.5–3 GW. Given various constraints, 1.5–2.2 GW is considered a reasonable target for 2010. Offshore placement of wind turbines has recently become an important option. The long-term technical potential on the Dutch continental shelf has been estimated to be between 10 and 56 GW. A realizable potential for 2020 has been estimated at 6-10 GW, and the government target for 2020 is 6 GW (Junginger et al. 2004; de Noord et al. 2004).
The Dutch hydropower capacity in 2000 was 37 MW, consisting of 2 MW generated from small hydro plants and 35 MW from large hydro. The technical potential for hydropower in the Netherlands is small. Hydropower technology is fully mature, and minimal cost
reductions and efficiency improvements are expected. The technical potential is estimated to
be about 100 MW, while the economic potential is estimated at 53-56 MW (Junginger et al.
2004; de Noord et al. 2004). Electricity produced from domestic biomass and organic waste accounted in 2000 for 40 PJth.15 In scenario studies for 2020, the range is 44-166 PJth while the best guess ranges from 65-75 PJth (Junginger et al. 2004). The installed PV capacity in the Netherlands was 20.5 MWp16 in 2001. For 2020, the realizable potential is reported to range from 35 to 8,000 MWp (de Noord et al. 2004) and from 16 to 2,000 MWp with a best guess at 580 MWp (Junginger et al. 2004).
Green electricity entered the Dutch electricity system during the 1990s, with the strongest increase in the second half of the 1990s (Dinica and Arentsen 2003). Green electricity has then been offered by all 12 electricity distribution companies since 1999, and sales grew considerably in late 1999 with the help of a marketing and media campaign launched by the World Wide Fund for Nature (WWF). Just before the liberalization of the green consumer market in July 2001, there was heavy advertising by utilities hoping to increase customer loyalty. This, combined with tax exemptions for green electricity, fuelled the demand. Since 1996, the number of green consumers has increased from 16,000 to 1.4 million in 2003. This sharp increase in demand is the result of the financial support measures (for consumers, the price difference between green and conventional grey electricity was, in effect, zero), combined with market liberalization and the media campaign promoted by environmental NGOs. Anticipating future full liberalization of the electricity market, electricity companies have used green electricity as a marketing tool to attract new customers and retain existing ones.
Two main targets have been set for the green electricity market in the Netherlands. In its third white paper on energy from 1995, the Dutch government formulated a policy goal of 10 percent renewable energy of total energy supply in 2020. The main emphasis was put on electricity from renewable sources, and a target of 17 percent contribution to the domestic electricity consumption was set. In line with the target formulated in the EU directive on renewable electricity, the Dutch government formulated an intermediate target of 9 percent contribution to electricity consumption from renewables in 2010. Studies have indicated that these goals may not be reached by domestic production only, and that import of green electricity may be needed to reach the targets. Nonetheless, there is still a potential for increased production of green electricity in the Netherlands (Junginger et al. 2004).
2.3.3 Sweden
Electricity production in Sweden has been and still is dominated by hydropower and nuclear energy. In 2002, 46 percent of the total electricity produced came from hydropower, while nuclear energy accounted for 45.7 percent. The current share of renewable energy in Sweden remains small, and biomass and wind are the main renewable energy sources. Their
contribution to the electricity production in 2002 is 2.6 percent and 0.4 percent respectively (Wang 2004).
Nuclear energy increased substantially after the first oil crisis in the early seventies, when the production was 1.4 TWh (or 2%, in 1972). Nuclear energy in production terms peaked in 1991 with 73.5 TWh, and its significance for electricity production peaked in 1996,
accounting for 52.3 percent (SEA 2003). Nuclear power has been discussed in Sweden for decades, and political decisions have been made to decommission the nuclear power plants.
Concern for industrial competitiveness has, however, hindered firm actions so far. To date there is still a lack of national consensus on the approach and timeframe of the phase-out of nuclear power. This dilemma has resulted in a lack of strong government commitment towards the development of renewable energy, which is reflected in the short-term nature of
15 PJ heat production
16 MW at peak power (PV functioning in optimal sunlight).
the subsidy programs for the renewable energy sources. In addition, CO2 policies have not been an additional incentive for promoting renewables, as the Swedish energy sector is already almost carbon free (Wang 2004).
Hydropower has dominated the electricity production in Sweden, accounting for more than 75 percent in the early 1970s. Production in 1970 was 40.9 TWh; it peaked in 2000 with 77.8 TWh, and was 66.0 TWh in 2002 (SEA 2003). The majority of this is from large hydropower stations, but there are also around 1200 small hydropower stations that together generate around 1.5 TWh of electricity. Despite the fact that Sweden has rich water resources, future expansion of hydropower is, however, limited due to the legislated protection of the few remaining large rivers. Small hydropower is controversial because of environmental impacts in the small streams concerned. Thus biomass and wind power are clearly the most important renewable sources of energy in Sweden so far in terms of resources, policy efforts and impacts (Wang 2004).
The use of biomass (biofuels and peat) in conventional thermal power plants was 3.8 TWh, or 2.6 percent of the total electricity production in 2002. Sweden has the second largest peat resources in Western Europe (after Finland) as well as large forest resources. The largest sources of biofuels are wood fuels (logs, bark, chips and energy forest), black liquors in pulp mills, peat, refuse, straw and energy grasses. It is estimated that, by 2010, the potential for the use of biofuels in Sweden will be about 160 TWh (Wang 2004).
Sweden’s first wind power plant with an installed capacity of 3 MW came in 1982. The number of wind power plants has steadily increased, and by 2002 there were 620 wind power plants with an installed capacity of 345 MW and a production of 609 GWh (0.4 % of the total electricity generation). Wind energy is the fastest growing renewable electricity resource in Sweden, as the installed capacity and the production nearly doubled from 1997 to 2002. Wind power is one of the main options for renewable electricity production for Sweden. In recent years, there has been more focus on identifying concrete sites for onshore and offshore wind power. The Swedish Energy Agency has suggested a target of 10 TWh of wind electricity by 2015, and concludes in a report that the potential may be around 100-200 TWh. A large share of the potential production will have to come from offshore installations, considering conflicts of interests for land-based wind power (Wang 2004).
Electricity production from solar PV is negligible in today’s Swedish energy system. There have been some R&D programs for PV, but Sweden lacks market development initiatives and subsidy programs such as feed-in tariffs or roof-top programs that have led to a direct
promotion of PV in countries such as Germany and Japan. However, the interest from the industry, architects and building companies to integrate solar PV systems in buildings are growing, and awareness of the advantage with PV system is increasing (Wang 2004).
Competition was introduced into the Swedish electricity market in January 1996. Since then, all end-users are free to choose their electricity suppliers. The liberalization of the Swedish electricity market provides straightforward access for small independent generators to be connected to the grid, and all consumers have access to green power. With the
liberalized electricity market, the SSNC introduced a green label, called “Bra Miljöval”
(Good Environmental Choice). SSNC, being Sweden’s largest NGO, has been able to initiate a number of environmental schemes and guidelines in the past. The objective of the voluntary labeling scheme for green electricity was to speed up the shift from nuclear power and fossil fuels to renewable energy sources and to prevent the continued expansion of hydroelectric power stations. The labeling scheme gave customers the opportunity to pay a levy on their electric bill to cover the incremental cost of producing electricity from renewable sources.
The labeling scheme has been successful. In 1996, the amount of environmentally labeled electricity sold already amounted to 3 percent of total generated electricity. The share of green electricity demand continued to grow to 10 percent in 2001 (Wang 2004). However, a
significant portion of the sales is to non-residential customers, such as commercial and
